The Agency Manager-Employee Operations Gap and E&O Risk: Survey

Agency managers tend to have a rosier view of agency operations than their employees do, according to a survey that also suggests this gap could present errors and omissions (E&O) implications.

The survey reveals that while many agencies have standard operating procedures, a majority of agencies do not update them regularly — yet at the same time a majority maintain they have effective E&O controls in place.

The Insurance Operations Best Practices Survey, conducted jointly by ReSource Pro Analytics and Insurance Journal, focused on processes related to profitability. The survey reveals gaps in perception between managers and employees, and offers some insight into how well agencies follow standardized operations.

The manager-employee perception gap is captured in several findings:

• 91 percent of managers say that the skills, talents, and experiences of their employees are matched to their work, while only 66 percent of the employees agree or strongly agree with that statement.
• 77 percent of managers agree or strongly agree that employee morale across the agency is high, yet less than 50 percent of employees agree with that.
• More than half of managers believe backlogs are a non issue, but only 36 percent of employees agree.
• 80 percent of managers say that they have a record of effectively leading change, but only 41 percent of employees agree.

Some perception differences may be a function of differences in access to information about the agency, according to K. Patrick Armstrong, CPCU, vice president of Business Development at ReSource Pro and a former independent agency principal and reinsurance broker.

“The different access to information cuts both ways,” Armstrong says. “Employees have less insight into management decisions, and managers may have less insight into day to day operational issues.”

Armstrong says it’s sometimes difficult for management to get a true look at the impact of change “because to a certain extent employees are reluctant to share negative information.”

Armstrong cites an example of managers, feeling financial constraints, deciding not to replace an employee who leaves the agency. The pressure then falls on the remaining service personnel to turn around more daily work amid rising service expectations. These same employees may also be learning new agency management systems, carrier platforms, or revised procedures at the same time.

“While all of those things, on paper, seem to make sense, managers may not get a true read from folks once those procedures and those changes have been put in place,” Armstrong says.

Dan Epstein, chief executive officer, ReSourcePro, says some managers may not view managing change as a disciplined process.

“There are best practices around change management,” Epstein says. “There are methodologies that make sure, first of all, that employees are aware of the reasons for the change, that they’ve then bought into the reason for the change, that they understand their role within it, that they have the skillsets they need, and the ability to do the work in its new form, and that there’s enough reinforcement around that for them to be successful.”

According to Epstein if managers implement the change process effectively, they should be able to reduce the gap in perception between how they are executing and how employees are experiencing that change.

Some gaps in perception uncovered by the survey relate to standard operating procedures (SOPs) and could have implications for agencies in their errors and omissions exposure:

• A third of agencies have more than 75 percent of their workflows documented as SOPs. That means that two thirds have less than 75 percent. In fact, about 50 percent of respondents have less than 50 percent of their workflows documented in SOPs.
• Among those that have standard operating procedures, 50 percent said that their transactions are not in compliance with their SOPs a majority of the time. Only 12 percent of respondents said that they update the majority of their SOPs on a regular basis.
• 86 percent of managers and 65 percent of employees say they have effective controls in place to manage E&O.

“That’s a lot of the industry who may not have detailed standard operating procedures,” says Epstein, referring to the 50 percent with less than half of their workflows in SOPs.

Armstrong sees the data as proving that, even though only a third of agencies attain 75 percent of SOPs or higher, those heights are achievable.

“Can you do that for 100 percent of all the work that needs to be done? Maybe you can, maybe you can’t, but certainly I think the goal should be for an agency to have a written procedure for nearly all the work that is done, if not all of it,” says Armstrong.

He recommends that an agency that has below 75 percent of its activities defined by a SOP should make getting up toward 75 or 80 percent a short term goal. If an agency is at 80 or 85 percent in SOP, it should try to get to 90 percent.

Epstein says updating SOPs is critically important yet only 12 percent of respondents said that they update the majority of their SOPs on a regular basis.

“We know that if those SOPs are not being updated regularly, they’re becoming obsolete, so the question is what are people following when they say they’re in compliance with them?” Epstein says. “That does suggest there’s quite a lot of gap between the ideal of having SOPs that are updated and that people are in compliance with, and what the reality probably is.”

Armstrong and Epstein see having SOPs as a significant E&O control measure but the survey responses cast doubt on whether agencies see SOPs that way.

The survey indicates that despite the reality surrounding SOPs, both managers and employees think they are effectively managing their E&O exposure:

• 94 percent of managers say they’re aware of current E&O risk, and 77 percent of employees say they’re aware of it.
• 86 percent of managers and 65 percent of employees say they have effective controls in place to manage E&O.

“The survey data suggests that people think that they do have their E&O under control,” says Epstein “So one of the questions is whether they view standard operating procedures to be a significant driver of reducing errors and omissions. Of course, we see that as being highly aligned to good practice.”

Epstein and Armstrong spoke with Insurance Journal’s Andy Simpson in a recent interview to further explore the agency operations gap and what to do about it. The complete podcast interview can be heard here.

The survey also revealed a producer productivity gap where producers are spending more time than they and their managers think they should on administration and client service.

The online survey was open to agency principals, managers and employees of retail agencies, program administrators, managing general agents and insurance wholesalers. The survey compares manager and employee views on agency workload, business growth, priorities for growth, change management and other issues as well as operations and process efficiencies.

A copy of the survey results is available for download here.

Topics Trends Agencies Human Resources Professional Liability